Three Commercial Real Estate CEOs Committed To ESG – Part 2

Last month, I featured part of an interview that I conducted with three CEOs of commercial real estate companies about their commitment to Environmental, Social and Governance (ESG) initiatives. I asked each CEO about how they prioritize ESG, what they are doing to reduce their company’s carbon footprint and what the commercial real estate industry needs to do as a whole to make a meaningful impact. Below is part two of our discussion.

Three real estate CEOs leading the way with ESG

Jennifer Little

The CEOs are:

· Sonny Kalsi, co-CEO of BentallGreenOak – A global commercial real estate investment platform that is leading the charge on ESG performance and sustainable investing.

· Sara Armbruster, CEO of Steelcase – A global provider of architecture, furniture, and technology solutions to create places that help people work better, be inspired and accomplish more.

Joe Derhake, PE, CEO of Partner Engineering and Science, Inc. – The top consulting firm helping CRE firms improve asset performance through engineering, energy, and environmental services.

tear: What is the next frontier for ESG – for you as a company and the CRE industry more broadly?

Kalsi: On the environmental front, our firm will be embracing the power of data at the asset level like never before. It’s a technological shift that requires the organizational culture to evolve too, but we know how important this change will be to future-proofing our assets. We will be sitting front row on many of the global collaborative efforts and forums that are underway to bring clarity and resolution to ESG reporting, standards and best practices.

Socially, we are initiating new efforts to bring that same collaborative energy to the challenge we all face of underrepresentation of minority communities in the real estate sector. We intend to use our influence and position in the industry to be a catalyst for generational change.

I expect that we will be embracing the adoption of new technologies at the property level, and establishing some important and symbiotic relationships with the proptech startup world. We will make targeted and timely investments on new technology adoption that will be an important factor in delivering on our ESG mission.

crossbow: We believe the best way to achieve collective change is by adopting models of partnership — whether between suppliers and companies or across sectors — to leverage each other’s scale, resources and expertise. This kind of collective action and unity of purpose will be key to accelerating progress in ESG.

For example, we’ve advanced our knowledge and strategies around creating inclusive workspaces for people with disabilities through a partnership with G3ict, the Global Initiative for Inclusive Information and Communication Technologies. Together, we’ve conducted quantitative and qualitative research to release a Blueprint for Inclusive Workplaces of the Future. We also joined the Valuable 500, a global business collective comprised of 500 international organizations committed to putting disability inclusion on their board agenda. This multi-sector approach helps us better understand and support the processes and practices to design spaces that are safe and compelling where people can bring their whole selves to work.

Derhake: More and more CRE firms have moved beyond measuring their carbon footprint and have committed to reducing it by following the goals set forth by the Paris Climate Agreement. Real estate owners are asking “How do I get to net zero?” We’re helping them figure out the most cost-effective way to get there. Carbon reduction pledges will promptly a wide range of projects throughout the lifecycle for a property, and as time goes on carbon reduction will be part of every long-term capital planning discussion.

tear: What changes should CRE leaders be making to tackle new ESG expectations?

Kalsi: For BGO, we are learning the importance of having a well-defined culture to serve as the backbone for our ESG mission. As CRE leaders, we cannot lose sight that the ESG challenges that lie ahead will require action from empowered and inspired people. When ESG truly matters, it is embodied by the actions of leaders to make it a way of work-life for all within the organization. The quest to reduce our carbon footprint will require CRE leaders to bring their clients along on the journey. Guiding this journey for our investor-clients, tenants and stakeholders is an extension of our fiduciary responsibility and will be critically important to achieving buy-in on long term reforms that will need to be invested in today to achieve our carbon reduction mission and the overall financial resilience of the investments we manage on their behalf.

crossbow: Leaders need to continue to champion the vision of ESG, but they alone cannot own the progress or strategies. We are focused on democratizing ESG priorities for everyone because we want to contribute to our employees,’ our customers’ and our communities’ fullest potential while also increasing the speed and relevance of our decision-making.

We believe workplace decisions are best made by those closest to the issues. Trusting our people and leaning into a model of empowered and distributed decision-making across our organization allows employees to thrive and feel a sense of belonging. Their deep understanding of our purpose and core values ​​anchors our commitment to integrity and using our business as a force for good.

Derhake: The expectations for real estate to improve its ESG performance will continue to rise. An asset that does not have reasonable carbon performance will have a harder time being seen as institutional grade; less and less money will be chasing under-performing assets. Brokers will increasingly try to accentuate an asset’s ESG credentials. Good real estate will always sell, but we will see high performing assets sell at a premium and lower performing ones sell at a discount.

CRE firms that really want to be successful in meeting ESG expectations need to bake it into the lifecycle of their real estate investments. With a little effort, CRE owners can identify a lot of projects with very adequate return on investment—the first steps are good investments. As we drive to net zero carbon, more expensive changes will be needed. I believe that these changes will tend to happen at the energy grid level as opposed to the asset level.